Alaska’s marijuana tax system has been largely unchanged since voters legalized the market in 2014, and members of the industry say it’s time for a change. That was the recommendation of a governor’s task force on marijuana to legislators earlier this year, calling for a switch from a wholesale tax to a sales tax.
Hope of a quick changeover, however, was dashed this year with the release of a revised statewide revenue forecast that showed a steep fallloff in projected revenue. Now, legislators and industry advocates are working to chart a solution heading into the 2024 legislative session.
Alaska’s marijuana tax structure was set in the 2014 initiative, setting the rate at $50 per ounce paid by growers regardless of the quality or final price of the product. Under the system, tax revenue has generally grown with annual revenue reaching nearly $30 million in the most recent completed tax year. The proposal from the working group—a 3% sales tax—would see about two-thirds of that revenue vanish practically overnight.
Such a precipitous drop in revenue was cause for alarm for legislators, especially in a year where the state’s revenue forecast came fell sharply from previous forecasts. House Labor and Commerce Committee Chair Rep. Jesse Sumner, who has taken the lead on shaping marijuana tax legislation in the House, said he felt the working group’s proposal of a 3% sales tax was too low and could doom the legislation.
“It was a shocking reduction in revenue,” he said. “If the state was rolling in money and the spring revenue forecast had gone the other way, and oil was at $120 a barrel, I think we would have already passed it. Given where the situation was, we thought we would be killing the bill if we had advanced it at that rate.”
He said the industry arguments in favor of a sales tax—that it would better reflect the wide variety, value and potency of marijuana products on the market—were convincing, just that they couldn’t readily sign away nearly $20 million in annual revenue.
“I recognize there’s an issue on the tax front,” he said. “Perhaps the production tax is inferior to a retail-facing tax for a lot of reasons, but one of the things we got hit with is the spring revenue forecast and the fiscal note on the tax change. Essentially, we thought the drop in the tax would be completely unpalatable. … We felt we had to raise the retail tax rate to make it a little more revenue neutral.”
To that end, the latest version of the marijuana tax bill contains a 10% sales tax rate.
Task force co-chair Brandon Emmett, who’s also a member of the Alaska Marijuana Industry Alliance and a co-owner of Fairbanks’ Good Titrations, said he still supports the 3% rate. He stressed that while the change in the tax form is important, the ask here is really about tax relief. Working in an industry that’s not federally approved is already costly and challenging, he said, and the state’s heavy tax burden just makes it more difficult. He said many growers are struggling to keep up with the taxes as competition heats up and prices fall.
“While many of us feel a tax at retail is obviously going to be a better-fit tax than a tax at wholesale, we’re really looking for tax relief” he said, explaining many of the headaches businesses have when it comes to handling regulations and federal taxes (where they’re barred from deducting most of their costs). “This isn’t sustainable anymore. … You start crashing into the price floor where you have the guy who’s going out of business competing with the guy who’s going out of business.”
While the industry has been generally supportive of the sales tax approach, not everyone is a fan. A smaller segment of retailers have opposed the legislation, arguing it could further skew an already unfair playing field. That’s because several communities already charge their own sales taxes on recreational marijuana. Anchorage, for example, charges a 5% sales tax and Seward has a 7% tax.
Still, even those groups have supported lowering taxes, acknowledging that the $50 per ounce rate is too high.
Matt Acuña Buxton is a long-time political reporter who has written for the Fairbanks Daily News-Miner and The Midnight Sun political blog. He also authors the daily politics newsletter, The Alaska Memo, and can frequently be found live-tweeting public meetings on Twitter.
